Wheeling and dealing in defence contracts

The safety, honour and welfare of yourcountry comes first, always and every time.The honour, welfare and comfort of themen you command come next.Your own ease, comfort and safety come last, always and every time

Chetwood credo

Over the years, generations of armed forces officers stood by this credo inscribed on the oak paneling at the eastern entrance of the Chetwood Hall in the Indian Military Academy in Dehradun. But as India emerges as one of the world’s top spenders on military equipment, at least a section of officers – whose numbers are growing steadily – appear to have given the credo a go by in their retired life. Lured by global military-industry complexes, they have willingly entered into slimy underside of glitzy corporate world as lobbyists for arms contracts worth thousands of crores.

It’s an area about which nobody in the armed forces is willing to speak. Most of them even deny the existence of lobbyists and middlemen in arms contracts. But in private they admit that the trade is thriving. The old boys network comes in handy for these lobbyists, most of whom remain unknown and faceless to the outside world.

Even if there are whiffs of the corruption in certain cases leading to blacklisting of firms and cancellation of contracts, the lobbyists remain outside the purview of the law as on paper they are not named. Army chief Gen V K Singh did something very unusual last month when he named a person – Lt Gen (retd) Tejinder Singh – who the chief claimed offered him a bribe to clear a sub-standard purchase. It stirred the hornet’s nest and opened up a Pandora’s box of controversy involving the high echelons of governance as the Prime Minister’s Office and defence ministry, as well as the defence forces and their preparedness.

After Independence, India’s arsenal was filled with British and European products many of which were produced in Indian defence public sector units since defence production was a monopoly of the public sector. India’s reluctance to enter into two USA-led military alliances in the 1950s in Asia and the defeat in 1962 war with China brought it closer to the Soviet Russia, which remained trusted military supplier for more than two decades.

Arms lobbying intensified after USSR broke down. The military encountered serious problems due to non-availability of spares from erstwhile Soviet Republics like Ukraine, Belarus, Kazakhstan and Azerbaijan. A former Indian Air Force officer recalled an incident in the 1980s when the IAF had critical shortage of one particular type of valve, then costing about Rs 40 a piece. It used to come from a Soviet republic. One fine day, a gentleman walked into Vayu Bhawan and offered to sell the same valve to the IAF at a price of Rs 5000 a piece. He had the stocks ready in his warehouse in Singapore!

That was the beginning. The floodgates opened, first with Jaguar fighters and Bofors guns, and subsequently with economic liberalisation. The rivalry with Pakistan and China ensured a fat purse available with the defence minister all the time and domestic technology was simply no match.

“After Bofors, the government had a stated policy of having no middleman in arms deals. But on the ground, they are there and keep lobbying for companies. Some feel their presence is unavoidable because India continues to import 70 per cent of its military equipment,” Gen V P Malik, former Army chief under whose leadership India fought the Kargil conflict, told Deccan Herald.

The foreign companies needed local help as they did not know the functioning of Indian government. Hiring a retired officer has two distinct advantages – his skills in a particular branch of military and knowing how to work around the obstacles set up by Indian bureaucracy.

“Not many of them (lobbyists) come to the service headquarters. They go to the defence ministry where deals are struck. The ministry needs to tighten the norms on people visiting the ministry. Proper records have to be kept for appointments and conversation should be recorded,” said Gen Malik.

Improving the indigenous defence production system could have solved the problem to a large extent. But this remained a neglected area. “We rely on import because defence production has not caught up.Culture change needed

The defence production units should spend much more on research and development and product upgrades. The work culture also needs to be changed to avoid long gestation period,” said an officer.

The government opened up the defence production industry in May 2001. Indian private sector was allowed to participate up to 100 per cent with foreign direct investment limit of up to 26 per cent. In 2004, a committee was set up under the chairmanship of Vijay Kelkar, former chairman of Finance Commission, to examine the current procedures and recommend changes in the acquisition process. One of its tasks was to suggest how DPSUs and Ordnance factories can assume the role of “designer and integrator, enabling them to build consortium of industries around them for product development.”

A sub-committee of Kelkar panel headed by Jagdish Khatter of Maruti Udyog, suggested a roadmap focussing on greater freedom at the management level, vendor development policies in all DPSUs and greater professionalism in the Directorate General of Quality Assurance for “effective quality assurance in manufacturing largely involving process audit and quality surveillance work.”

Other important recommendations made by Kelkar panel was setting up of a new and professional agency for defence acquisition, preparation of a 15-year long term acquisition programme, defence R&D opportunity both at DRDO and industry and promotion of transparency in decision making. After years of delay, the government implemented some of the recommendations while revamping the defence procurement procedure, but a lot more needs to be done.

For instance, the long term integrated perspective planning (LTIPP) document detailing the procurement plan for the three services for the next 15 years is way behind schedule. Defence Minister A K Antony said on March 29 that LTIPP was in the final stage and would come to the Defence Acquisition Council headed by him.

Navy, said Kelkar, was the most advanced among the three services as it had a 15-year plan. Every major global military power has a long term plan known to the industry. That’s not the case in India as secrecy rules the roost. An Air Marshal countered, “What is secret is not production but deployment of equipment.”

Indian planners have also not recognised the shifting nature of global defence business, concentrated in the hands of a few large corporations. Blacklisting complicates the procurement process for armed forces and national defence preparedness.Blacklisting

Take the example of long-range artillery guns for the Army. India last purchased it in 1986 from Bofors. Even as the Army is desperately looking for replacement for these vintage guns, the government blacklisted two manufacturers – Denel and Singapore Technology – in the last decade leaving little option with the ministry to buy guns through a transparent and fair procedure. “One common ploy of arms companies is to ensure that its competitors are blacklisted so that their own product stays ahead in the race,” said an analyst.

“Arms selling is an extremely competitive business. Touts are always there not only for large scale import but also for smaller items produced locally,” said Malik. “More than big ticket items, lobbying works more in smaller items where the risk of expose is less and the profit comes by volume sale. The retired brigadiers and colonels come in handy always,” said an analyst.

Has the Chetwood credo lost its relevance?

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Saturday, March 31, 2012

Wheeling and dealing in defence contracts

The safety, honour and welfare of yourcountry comes first, always and every time.The honour, welfare and comfort of themen you command come next.Your own ease, comfort and safety come last, always and every time

Chetwood credo

Over the years, generations of armed forces officers stood by this credo inscribed on the oak paneling at the eastern entrance of the Chetwood Hall in the Indian Military Academy in Dehradun. But as India emerges as one of the world’s top spenders on military equipment, at least a section of officers – whose numbers are growing steadily – appear to have given the credo a go by in their retired life. Lured by global military-industry complexes, they have willingly entered into slimy underside of glitzy corporate world as lobbyists for arms contracts worth thousands of crores.

It’s an area about which nobody in the armed forces is willing to speak. Most of them even deny the existence of lobbyists and middlemen in arms contracts. But in private they admit that the trade is thriving. The old boys network comes in handy for these lobbyists, most of whom remain unknown and faceless to the outside world.

Even if there are whiffs of the corruption in certain cases leading to blacklisting of firms and cancellation of contracts, the lobbyists remain outside the purview of the law as on paper they are not named. Army chief Gen V K Singh did something very unusual last month when he named a person – Lt Gen (retd) Tejinder Singh – who the chief claimed offered him a bribe to clear a sub-standard purchase. It stirred the hornet’s nest and opened up a Pandora’s box of controversy involving the high echelons of governance as the Prime Minister’s Office and defence ministry, as well as the defence forces and their preparedness.

After Independence, India’s arsenal was filled with British and European products many of which were produced in Indian defence public sector units since defence production was a monopoly of the public sector. India’s reluctance to enter into two USA-led military alliances in the 1950s in Asia and the defeat in 1962 war with China brought it closer to the Soviet Russia, which remained trusted military supplier for more than two decades.

Arms lobbying intensified after USSR broke down. The military encountered serious problems due to non-availability of spares from erstwhile Soviet Republics like Ukraine, Belarus, Kazakhstan and Azerbaijan. A former Indian Air Force officer recalled an incident in the 1980s when the IAF had critical shortage of one particular type of valve, then costing about Rs 40 a piece. It used to come from a Soviet republic. One fine day, a gentleman walked into Vayu Bhawan and offered to sell the same valve to the IAF at a price of Rs 5000 a piece. He had the stocks ready in his warehouse in Singapore!

That was the beginning. The floodgates opened, first with Jaguar fighters and Bofors guns, and subsequently with economic liberalisation. The rivalry with Pakistan and China ensured a fat purse available with the defence minister all the time and domestic technology was simply no match.

“After Bofors, the government had a stated policy of having no middleman in arms deals. But on the ground, they are there and keep lobbying for companies. Some feel their presence is unavoidable because India continues to import 70 per cent of its military equipment,” Gen V P Malik, former Army chief under whose leadership India fought the Kargil conflict, told Deccan Herald.

The foreign companies needed local help as they did not know the functioning of Indian government. Hiring a retired officer has two distinct advantages – his skills in a particular branch of military and knowing how to work around the obstacles set up by Indian bureaucracy.

“Not many of them (lobbyists) come to the service headquarters. They go to the defence ministry where deals are struck. The ministry needs to tighten the norms on people visiting the ministry. Proper records have to be kept for appointments and conversation should be recorded,” said Gen Malik.

Improving the indigenous defence production system could have solved the problem to a large extent. But this remained a neglected area. “We rely on import because defence production has not caught up.Culture change needed

The defence production units should spend much more on research and development and product upgrades. The work culture also needs to be changed to avoid long gestation period,” said an officer.

The government opened up the defence production industry in May 2001. Indian private sector was allowed to participate up to 100 per cent with foreign direct investment limit of up to 26 per cent. In 2004, a committee was set up under the chairmanship of Vijay Kelkar, former chairman of Finance Commission, to examine the current procedures and recommend changes in the acquisition process. One of its tasks was to suggest how DPSUs and Ordnance factories can assume the role of “designer and integrator, enabling them to build consortium of industries around them for product development.”

A sub-committee of Kelkar panel headed by Jagdish Khatter of Maruti Udyog, suggested a roadmap focussing on greater freedom at the management level, vendor development policies in all DPSUs and greater professionalism in the Directorate General of Quality Assurance for “effective quality assurance in manufacturing largely involving process audit and quality surveillance work.”

Other important recommendations made by Kelkar panel was setting up of a new and professional agency for defence acquisition, preparation of a 15-year long term acquisition programme, defence R&D opportunity both at DRDO and industry and promotion of transparency in decision making. After years of delay, the government implemented some of the recommendations while revamping the defence procurement procedure, but a lot more needs to be done.

For instance, the long term integrated perspective planning (LTIPP) document detailing the procurement plan for the three services for the next 15 years is way behind schedule. Defence Minister A K Antony said on March 29 that LTIPP was in the final stage and would come to the Defence Acquisition Council headed by him.

Navy, said Kelkar, was the most advanced among the three services as it had a 15-year plan. Every major global military power has a long term plan known to the industry. That’s not the case in India as secrecy rules the roost. An Air Marshal countered, “What is secret is not production but deployment of equipment.”

Indian planners have also not recognised the shifting nature of global defence business, concentrated in the hands of a few large corporations. Blacklisting complicates the procurement process for armed forces and national defence preparedness.Blacklisting

Take the example of long-range artillery guns for the Army. India last purchased it in 1986 from Bofors. Even as the Army is desperately looking for replacement for these vintage guns, the government blacklisted two manufacturers – Denel and Singapore Technology – in the last decade leaving little option with the ministry to buy guns through a transparent and fair procedure. “One common ploy of arms companies is to ensure that its competitors are blacklisted so that their own product stays ahead in the race,” said an analyst.

“Arms selling is an extremely competitive business. Touts are always there not only for large scale import but also for smaller items produced locally,” said Malik. “More than big ticket items, lobbying works more in smaller items where the risk of expose is less and the profit comes by volume sale. The retired brigadiers and colonels come in handy always,” said an analyst.